Many executive education programs focus on building tools for effective management and leadership. Owners of closely held businesses, however, have a different set of concerns—specifically, how to be a strategic and purposeful owner.
For the first time, Olin Executive Education is offering the course “Building Strategic Ownership” via the Koch Center for Family Business. Registration for the January 11-12 course is open now.
“Strategic ownership over a longtime horizon is difficult.” said Peter Boumgarden, Koch Professor of Practice for Family Enterprise and director of the Koch Center.
Boumgarden
“In a world of quarterly returns, thinking with time horizons of decades or more requires a different set of skills. While many owners have refined their ability through experience over time, having the opportunity to learn from others on this same path and simultaneously be informed by what we know from the research on best practices can be incredibly powerful.”
The course will work with owners to build competence and capability. It will focus on bringing together owners from different sectors and sizes, and then helping them work to define their unique purpose of ownership. With this purpose in mind, the group with work together and with faculty to build ownership competence specific to this goal, and to then think about how they might work to craft a portfolio aligned with this objective with an extended time horizon.
In Boumgarden’s view, the best way to approach the course would be to come as a team, mixing family owners with senior leaders and members of the board.
“It takes a village to do this work well,” he said. “Most of the organizations who would benefit from this course have a bundle of individuals—family and nonfamily, owners and employees—who must coordinate how they approach building an organization for sustainability. The value is crafting owner competence as a collective.”
The organizers encourage teams of two to three from the same business to register, and those teams will receive tuition discounts on the $2,200 course. The course is designed for single owners or senior leaders of a closely held business and leadership teams. A team could consist of two family members and a board member, for example, or a senior nonfamily leader.
“By the end of the program, you’ll be better positioned to create long-term value for the firm in the position you are capable of—that of a strategic business owner,” Boumgarden said.
Click here to watch a short video about the course.
Olin’s central course on family business is “Ownership Insights: Strategic Leadership of the Family- and Employee-Owned Firm.” In this course, Spencer Burke, Eugene F. Williams Jr. Executive in Residence, and I (Peter Boumgarden) have spent the last few weeks identifying the choices owners face in their business and their respective impact on firm performance.
Plan for the transition to the next generation (Transfer)
Use effective communication to build trusted relationships (Communication)
Structure governance to make great decisions together (Decide)
Create an ownership strategy to define success (Value)
In this blog post, I want to show how this framework translates into teaching our students to understand the consequences of ownership decisions in the family firm.
Ownership choices and value constellations
One of the things I most appreciate about Josh’s tool is the clarity by which he brings out the potential choices in play for owners of organizations.
Amongst all of these five choices (design, transfer, communicate, decide, value), what I get most excited about with private enterprise is the possibility of intentionally defining value—or success—in different ways than those in other ownership forms. Our course, in particular, seeks to extend this work by formally filling out all the influences on ownership choices, from changing demographics and its impact on the family tree and succession to differences in cultural psychology across regions and how it shapes what is considered fair in different spaces. You can see the full framework below.
One of the critiques of family business as an ownership form is found in research by Nicholas Bloom, Raffaella Sadun, and John Van Reenen. Using the World Management Survey (WMS) as a tool, the researchers argue that family businesses with family CEOs are less well run than many other ownership forms in the market (dispersed shareholders, private equity controlled, etc.). A great deal of the power of this work is that companies that are independently scored high on these 19 dimensions empirically perform better on many measures of company financial performance than companies who score lower.While I like this research a great deal, if you dig into the “World Management Survey” items (here is a survey from retail, for example), it also becomes clear that these are not value-free items. Let’s look at three examples in particular to illustrate the point, with the item identified first, and the description of the top score identified after:
CONSEQUENCE MANAGEMENT – Top Score: A failure to achieve agreed targets drives retraining in identified areas of weakness or moving individuals to where their skills are appropriate.
TARGET INTERCONNECTEDNESS – Top Score: Corporate goals focus on shareholder value; they increase in specificity as they cascade through business units ultimately defining individual performance expectations.
RETAINING TALENT – Top Score: We do whatever it takes to retain our top talent.
Many of us can see why companies like this might perform well and perhaps be the kinds of companies we might want to invest in or work for. But, for the sake of argument, let’s consider another company wedded to a different set of values along these exact dimensions.
CONSEQUENCE MANAGEMENT – “At Company X, we set clear goals for our people but build in a care for people when they don’t perform at expectation, knowing that circumstances sometimes sit outside one’s control.”
TARGET INTERCONNECTEDNESS – “As owners of Company X, we desire strong shareholder performance, as that is in our financial interest. That said, we want to ensure that multiple stakeholders of the business, from you as employees to the communities we sit within, matter a great deal. As such, if we add value for those other groups and this sometimes occurs at the expense of shareholder value, we will still consider that a good year.”
RETAINING TALENT -”We want you to perform well here. That said, we know that this might not be the fit for your forever. As such, if this company is not the best place for you, we want you to know that we care about you enough to want to find the best fit for you moving forward, even if that place is not here.”
I bring up these points of comparison not to suggest that the latter is a better way of performing, but rather to show how you could see an owner setting up their business like this and thus defining value in a very different way. In many ways, our economy functions in healthy ways when it is represented by companies reflecting a wider plurality of value positions, and not all of the same ownership model (private, public, PE owned, family owned, employee owned, etc.)
The lived philosophy in family and private enterprise
We have seen many of these differences reflected in the comments from class speakers, someof whom have already shown up and others to come in the next few weeks:
This summer, I was on a long run with a good friend, Chris Bolyard. Located in the Maplewood neighborhood of St. Louis, Chris’ butcher shop, Bolyard’s Meat and Provisions, is one of Food and Wine’s Best Butcher Shops in America. On the run, Chris and I got to talk about whether he would ever open multiple shops or grow his enterprise outside of St. Louis. We had a few mutual friends who had done similar things with their restaurants, so you could see what might be appealing. While Chris didn’t outright say he wouldn’t do those things, it became clear that this was not a fundamental priority for his business. He saw the strain this would have on his family, his lifestyle, and perhaps even his ability to keep the same quality standards across the operations.
Chris’ north star is on product quality and serving his neighborhood customers over and above rapid growth and expansion. To take it a step further, even if he did move to multiple locations, it is clear that Chris does not aspire to be Tyson Foods. So, would it be fair to compare Tyson Food to Bolyard’s Meat and Provisions? No, for in many ways, these two are running in fundamentally different races.
Ownership strategy to define and drive value
The trap that a family business center like ours needs to avoid is believing that our mission is to tell our audience a set of sugary truths we think they want to hear. This belief might lead us to make claims that are empirically hard to justify (“Family ownership of any form is the best ownership form in the world, in all times and all places”) . As a research based institution, this is not a path we should or will follow.
At the same time, the challenge for many business schools in the world is we too often have bought into an overly narrow, quantitative, and academic view of value (“shareholder value”, “ROIC,” “IRR,” “professionalism”) and have a hard time seeing what other constellations of value choices can be just as compelling. At the Koch Center, we hope to explore some of these distinct concepts of value and the strategic implications of organizing around such structured purposes.
There are significant challenges for most family businesses: the incentives of family shareholders, the challenges of maintaining family harmony through different business ups and downs, a family which grows faster than a business, fairness in succession of ownership, control, and management, amongst others—many of which we address in the course and the programming of the Center. With that said, what is compelling about the closely held business, whether family, employee or privately owned, is the opportunity to define a distinct set of values, and then organize a strategy and structures around such ends. Doing this well is hard work. At the Koch Center, we hope to contribute to this important task through a mix of academic clarity and educational expertise for those within and outside the halls of Washington University.
Koch Center for Family Business Associate Director Alex Haimann was recently published in the Harvard Business Review. His article, “How to Design a Better Hiring Process,” suggests a number of innovative alternatives to the standard “What are your strengths and weaknesses?” approach to evaluating prospective hires.
Better methods, he says, might be to “immerse job candidates in unconventional scenarios to gather the most useful insights about their critical-thinking abilities, tech savviness, and interpersonal skills,” for example, testing technical skills by observing the candidate’s real-time problem-solving process.
Haimann reports success since implementing this approach in his own business, seeing significant increases in retention and quality of new hires.
In addition to his work with the Koch Center, Alex is a partner and the head of business development at Less Annoying CRM, a simple CRM built from the ground up for small businesses. More than 10,000 small businesses worldwide use LACRM to manage contacts, track leads, and stay on top of follow-ups. LACRM continues to grow by engaging customers and finding new opportunities for mutually beneficial partnerships.
Family members who are CEOs of their family business remain in the role longer and are rarely forced out. That’s one finding in a newly released research brief from the Koch Center for Family Business, “Family CEOs, Turnover, and Firm Performance.”
The brief was co-written by Koch Center Director Barton H. Hamilton, Professor Andres Hincapie (UNC), and research fellows Simone Hanna and Noah Lyman.
The brief details the following findings regarding the turnover and performance of CEOs in family businesses:
CEO performance has a signicant impact on the likelihood of forced turnover.
Family CEO successors remain CEO for longer and are almost never forced out.
Insiders (both family and non-family) tend to be appointed in more profitable companies than outsiders. Insider CEOs appear to outperform outsiders as a result.
Family insiders are younger and have more experience in the firm at time of appointment than unrelated insiders.
Founders are more likely to be forcibly removed from office by year two than any other CEO type.
Find more research and resources on family business and succession at the Koch Center site.
Emma Vogel, a video intern in Olin marketing and communications, wrote this for the Olin Blog.
Spencer Burke, adjunct lecturer in family business for WashU Olin, will assume the role as Eugene F. Williams Jr. Executive in Residence for the Koch Center for Family Business, Dean Mark Taylor and Professor Bart Hamilton announced in May.
The appointment is the latest development following the spring 2018 announcement of the Koch Center for Family Business, launched with the support of the St. Louis Koch family’s gift $9 million. That center is the outgrowth of the Olin family business program, funded with a $1.09 million donation from the Kochs in 2016.
The Olin family
business initiative began to “educate future business leaders on unique family
business issues while providing resources for family enterprise as they grapple
with these challenges.”
Prior to
accepting this position, Burke served as the leader of the family business
initiative and has been the organizer and moderator of Olin’s highly successful
annual family business symposium. He is a principal at the St. Louis Trust
Company, where he leads the firm’s family business advisory practice.
Additionally,
Burke currently serves as chairman of the board of the Mallinckrodt Foundation,
which seeks to fund biomedical research in St. Louis and throughout the United
States.
“I have taught at Olin for eight or nine years and I am excited to no longer be the lone ranger in family business,” Burke said. He will now join a team at the Koch center—led by Hamilton, the center’s inaugural director, Olin’s Robert Brookings Smith Distinguished Professor of Economics, Management & Entrepreneurship—that will help to tackle family business education.
Burke also feels that that through the establishment of the Koch center and the family business initiative, the subject matter is being recognized as an important part of Olin Business School. While in the position, he wants to be a part of the team that animates the important role of family business in the U.S. economy.
Much like
the mission of the Olin family business initiative, Burke places importance on
business sustainability. Along with the other key players in the family
business center, Burke will be the resident practitioner of family business issues.
As the
executive in residence, he will be available for consultation at the request of
students and will also be establishing office hours for the upcoming semester. He
is excited for the opportunity to have more interaction with students in the
family business program.
This will allow for valuable, real-time analysis
and problem solving in relation to real-life family business issues that students
encounter. Burke feels that through more interaction, the program will achieve
even greater success.
